Section 194LBC does not cover Excess Interest Spread paid to an originator absent investment in the securitisation trust.

Section 194LBC applies only to income payable to an investor in respect of investment in a securitisation trust, and the term "investor" is tied to a holder of a securitised debt instrument or security receipt. On the stated facts, the originator had not subscribed to PTCs or any investment in the trust; its retention was through cash collateral and collateralisation of excess receivables, and the assignment deed did not create an investment instrument. Excess Interest Spread was treated as a residual amount for creating the receivables pool, not income from investment in the trust, so TDS was held not deductible under section 194LBC and liability under sections 201(1) and 201(1A) did not arise.

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Issues: Whether tax was required to be deducted at source under section 194LBC on Excess Interest Spread paid by a securitisation trust to the originator, and whether the assessee could be treated as an assessee in default under sections 201(1) and 201(1A).

Analysis: Section 194LBC applies only where income is payable to an investor in respect of investment in a securitisation trust. The expression "investor" is linked to a holder of a securitised debt instrument or security receipt, and a securitised debt instrument must be an instrument issued by a special purpose distinct entity acknowledging beneficial interest in the relevant debt or receivable. On the facts, the originator had not subscribed to any PTCs or other investment in the trust and had only met the minimum retention requirement through cash collateral and collateralisation of excess receivables. The assignment deed merely reflected acquisition of receivables and did not amount to an instrument issued to an investor evidencing investment. Excess Interest Spread was found to be a residual amount or reward for creating the pool of receivables, not income arising from an investment in the trust.

Conclusion: Section 194LBC was held inapplicable and the demand raised under sections 201(1) and 201(1A) was deleted; the assessee was not liable to be treated as an assessee in default.

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